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Russia issuing yuan-denominated bonds

On the heels of the International Monetary Fund’s approval for the yuan, Russia said it’s preparing to raise $1 billion in yuan-denominated sovereign bonds in Moscow, the Financial Times reported Monday.

Last week, the IMF made the yuan, also known as the renminbi, a world reserve currency by including it in its Special Drawing Rights basket. By integrating the yuan to the SDR, the IMF boosted the credibility of the currency and acknowledged it would be an accepted part of the global economic system.

The latest move by Russia will aid the yuan’s international expansion and could lead to ruble-denominated bonds being issued in China and help promote similar cross-currency issuance by other big emerging markets, eating into the dominant role of the US dollar in global capital, said the FT.

This isn’t just a diplomatic nicety by Russia, but an opportunity to do an end-around the sanctions imposed by the US and Europe. In September 2014, the US and EU imposed sanctions in response to Russia’s annexation of Crimea and its backing of separatists in eastern Ukraine. Since then many Russian companies have been barred from issuing foreign currency bonds in dollars or euros.

The yuan-denominated bonds would potentially open a new source of foreign funding for Russian banks and businesses shut out of capital markets in the US and Europe by the sanctions.

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Russia is not the first to issue renminbi-denominated sovereign debt. Last year, the United Kingdom became the first western country to do so.